Sovereign rating downgrade unlikely for Malaysia

PETALING JAYA: Malaysia's sovereign rating is unlikely to see a downgrade, despite a possible widening in the deficit due to lower oil revenues and high household debt because of its strong fundamentals, said Malaysia University of Science Technology School of Business Dean Dr Yeah Kim Leng.
"As far as outlook goes, whether negative, stable or positive, given that we do not expect any sharp deterioration in terms of any of the fundamentals, we can say that Malaysia's rating should actually be relatively stable.
"It's usually a change in fundamentals that will trigger any change. As long as we meet the fiscal deficit, as long as our debt does not balloon, then we are fine. Our view is that we are not likely to see any simultaneous downgrade of any two of the three rating agencies," he said at the Regional Corporate Outlook Conference yesterday.
He said Malaysia's overall economic growth rate looks relatively stable and external factors appear to be relatively intact when compared with countries that have A- ratings.
In terms of economic risk, Yeah said Malaysia's real gross domestic product (GDP) growth still looks comfortable despite the possibility of a decline while unemployment rate is low. In addition, disinflation is expected this year partly due to the fall in oil price and implementation of the Goods and Services Tax (GST).
He said Standard & Poor is likely to reaffirm its A- rating with a stable outlook, with a 10% chance of a reaffirm with negative outlook while Moody's is likely to reaffirm its A2 rating with a positive outlook, with a 30% chance of an upgrade to A1 rating.
Meanwhile, Fitch is expected to reaffirm its A- rating with a 30% chance of a downgrade to BBB+.
Commenting on the 25 sen increase in petrol price, Yeah said the increase is reasonable given that oil prices have picked up and considering the sharp fall from RM2.20 to RM1.70 per litre previously, the increase is reasonable, although the largest increase previously was 20 sen.
"As long as the government is able to manage it, let it float according to market prices, then consumers will be able to get used to the fact that oil prices will actually change according to the current environment. The key here is the adaptability of consumers. It is important to not give consumers the misimpression that prices are always stable. In fact, it's a good sign that consumers are getting used to the volatility, the fluctuations in the oil prices," he told reporters at the sidelines of the conference.
"We actually thought the current price will hold for some time, given that world oil prices have fallen to below US$50, now of course we've seen that it has risen back close to US$55 so I think there is a need for some adjustment.
"We see these price changes as a reality. Malaysian consumers have been shielded from reality because of the controlled price. It's actually not desirable from the point of ensuring that consumers are able to adapt to changing prices. As long as adjustments allow consumers to gradually adjust to it, I think it's not an issue," he said, adding that the adjustment will be a new norm for Malaysian consumers.
At the same time, the government should also lower oil prices and not wait, when world oil prices fall.
Yeah expects world oil price to fluctuate between US$55 and US$65 per barrel this year.